What is Net Current Asset Value Per Share ?

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Net current asset value per share (NCAVPS) is a measure created by Benjamin Graham as one means of gauging the attractiveness of a stock. A key metric for value investors, NCAVPS is calculated by taking a company's current assets and subtracting total liabilities.Graham considered preferred stock to be a liability, so these are also subtracted. This is then divided by the number of shares outstanding. NCAV is similar to working capital, but instead of subtracting current liabilities from current assets, total liabilities and preferred stock are subtracted. The formula for NCAVPS is:NCAVPS = Current Assets - (Total Liabilities + Preferred Stock) ÷ Shares Outstanding

Definition

Net Current Asset Value Per Share (NCAVPS) is a metric used to assess the attractiveness of a stock, particularly in value investing. It is calculated by subtracting total liabilities and preferred stock from a company's current assets, then dividing by the number of outstanding shares.

Origin

The concept of NCAVPS was introduced by Benjamin Graham, one of the founders of modern securities analysis and value investing. Graham developed this metric in the early 20th century to help investors identify undervalued stocks.

Categories and Features

NCAVPS is primarily used in value investing strategies to help investors identify undervalued stocks in the market. It is characterized by its conservative and cautious approach, making it suitable for use during times of economic uncertainty. Its advantage is in uncovering potential investment opportunities, while its disadvantage is that it may overlook growth companies.

Case Studies

A typical case is the U.S. market in the 1930s, where Graham used NCAVPS to discover many undervalued companies, such as Geico. Another example is the Japanese market in the late 1980s, where many companies' stock prices fell below their NCAVPS after the economic bubble burst.

Common Issues

Investors often misunderstand NCAVPS as a measure of a company's profitability, whereas it actually focuses more on the safety of the balance sheet. Additionally, not all stocks trading below NCAVPS are good investment opportunities, and further analysis is required.

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